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What Would Really Happen If Student Debt Was Cancelled?

Updated: Jul 28

The sky is going to fall. The seas will boil. And the world fall into complete disarray. Maybe? No.

The topic of student loan cancellation has been a source of heated debate in recent years. While some argue that cancelling student debt would provide much-needed relief to borrowers and stimulate the economy, others contend that it would be too expensive and unfair to taxpayers who did not take out student loans. In this blog post, we will explore the potential impacts of student loan cancellation, drawing on facts, figures, and statistics.

First, let's consider the extent of the student loan debt crisis. As of 2021, Americans owe over $1.76 trillion in student loan debt, with an average debt load of around $38,000 per borrower. This debt can take decades to repay and can have a significant impact on borrowers' financial well-being, with some forced to delay major life milestones like buying a home or starting a family.

If student loan debt were cancelled, it could have a number of potential impacts. Here are a few:

  1. Relief for borrowers: Obviously, cancelling student debt would provide significant relief to millions of borrowers struggling with debt. According to a study by the Levy Economics Institute of Bard College, cancelling all outstanding student debt would boost GDP by up to $108 billion per year over the next decade and could create up to 1.5 million jobs per year.

  2. Economic stimulus: By cancelling student debt, borrowers would have more disposable income to spend, which could stimulate economic growth. A report by the Roosevelt Institute estimates that cancelling $1.7 trillion in student debt could boost GDP by $86 billion to $108 billion per year over the next decade.

  3. Costs to taxpayers: The cost of cancelling student debt would be significant, with estimates ranging from $1.4 trillion to $2.2 trillion. This would be a major expense for taxpayers, and some argue that it would be unfair to ask taxpayers who did not take out student loans to foot the bill for those who did.

  4. Impact on lenders: Cancelling student debt could have significant impacts on lenders, particularly private lenders who hold a significant portion of student loan debt. According to a report by Moody's Investors Service, cancelling student debt could lead to credit rating downgrades for private lenders and could impact their ability to lend in the future.

It is worth noting that there are different proposals for how student loan cancellation could be implemented, ranging from cancelling all outstanding student debt to cancelling a portion of it for certain borrowers. The potential impacts of these proposals would vary depending on the specifics.

In conclusion, cancelling student debt would have significant impacts on borrowers, the economy, taxpayers, and lenders. While it could provide much-needed relief to struggling borrowers and stimulate economic growth, it would also be a major expense and could have unintended consequences. Any decision on student loan cancellation should be made with careful consideration of these potential impacts.

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